Allen Pike 2016-12-01T00:51:15-08:00 http://www.allenpike.com/ Allen Pike http://www.allenpike.com/2016/getting-paid-receivables Rules to get paid by 2016-11-30T22:00:00-08:00 Allen Pike http://www.allenpike.com/ <p>Not getting paid on time kills businesses. Slow payment is especially deadly in the consulting world, since in extreme cases it can cause a company to miss payroll. If that happens, their best people will leave. This alone makes missing payroll the worst thing that can happen to a software company. It shouldn’t happen for any reason.</p> <p>Steamclock has never missed payroll. That shouldn’t be novel, yet somehow it is. I hear about it happening all the time. This is, obviously, garbage. As it happens, I run a mailing list for bright app developers who work at companies that aren’t getting paid: <a href="&#109;&#097;&#105;&#108;&#116;&#111;:&#114;&#101;&#115;&#117;&#109;&#101;&#115;&#064;&#115;&#116;&#101;&#097;&#109;&#099;&#108;&#111;&#099;&#107;&#046;&#099;&#111;&#109;">&#114;&#101;&#115;&#117;&#109;&#101;&#115;&#064;&#115;&#116;&#101;&#097;&#109;&#099;&#108;&#111;&#099;&#107;&#046;&#099;&#111;&#109;</a>.</p> <p>Of course, every business owner <em>wants</em> to get paid consistently and on time – hence the popularity of Mike Monteiro’s classic Creative Mornings talk titled “<a href="https://creativemornings.com/talks/mike-monteiro--2/1">Fuck You, Pay Me</a>.” Yet as provoking as his rallying cry may be, insults are in fact <em>not</em> the most effective way to make people pay you. Rather more effective are rules.</p> <p><img style='max-width: 100%' src="/images/2016/dogs-rule.jpg" /></p> <p>It pays to have rules around getting paid. Specifically, you need rules for two things: when clients are meant to pay, and what happens if they don’t.</p> <p>The right rules for when a client needs to pay will vary depending on the size of your projects and clients. For short projects, a deposit at the beginning and the remainder at the end can work well. For multi-month projects, the least bad approach is to invoice every month for your time. Making payment a continuous function is ideal, since it reduces the chance and size of surprises. When it comes to money, surprises are bad.</p> <p>Regardless of how you invoice though, the key is just to spell it out beforehand and stick to it. Pick a system, get it on paper, then follow your rules. Rules help you be diligent, and diligence gets you paid.</p> <p>Now, as important as Accounts Receivable is, it’s not exactly… fun. I got into business to make stuff, not bug people for money. In our early days, I tended to procrastinate sending out invoices and late payment inquiries, especially when things were busy. After about a year of this, we had a client quietly pay one invoice, but not the one before it. By the time I noticed and got around to contacting them about it, they’d gone out of business. We lost $23,000. It wasn’t great.</p> <p>Since then, we’ve treated receivables as a pressing matter, even when we have plenty cash in the bank. We invoice consistently the first of every month, and follow up with rigour. We’ve invested in automation to make this easier, too. Consistency works.</p> <h2 id="except-when-it-doesnt">Except when it doesn’t</h2> <p>As far as consistency will get you, if you work with startups or other rapidly growing businesses, sometimes they’ll struggle with cashflow. To manage these problems, you need to apply fair but undesirable consequences when a client consistently doesn’t pay on time. While individual tastes vary, popular selections include:</p> <ul> <li>Witholding IP rights to the work in question</li> <li>Charging interest</li> <li>Ramping down or halting development after a warning period</li> <li>Telling a client “Fuck you, pay me” <em>(advanced users only, offer not valid in Hawaii or Canada)</em></li> </ul> <p>Obviously, pressuring somebody for payment isn’t fun. Fortunately, it works just like anything else in project management: frequent communication makes for far less drama. If a client springs bad payment related news on you, your response should start with “Well, as you know…” instead of “Okayy… uh…”</p> <p>Communication is critical because the point of having payment rules is to spend time getting paid, not punishing delinquent clients. Having to halt development due to late payment is good for exactly nobody. The better and earlier you communicate your rules, the less likely you’ll need to enforce them. That’s why your payment rules belong in your contract.</p> <p>A lot of people think contracts are about lawsuits, but that is the extreme failure case. In six years, we’ve never had a client even threaten to sue us. When used properly, contracts are about communicating expectations before getting started. Before you get started, agreeing to rules on non-payment should be easy, since clients generally intend to pay their invoices. If a potential client isn’t sure they can pay you, they may take issue with having firm payment terms in your contract. Consider that signal with great caution.</p> <p><img style='max-width: 100%' src="/images/2016/money-pile.jpg" /></p> <p>Once you have your contract in place, staying systematic and professional about receivables keeps them from undermining the good relationships you’ve worked your butt off to build. Sometimes clients will be late for reasonable reasons, and that can be fine. If their reasoning is plausible and they’ve been good in the past, cut them a commensurate amount of slack in return for committing to when payment will happen. If you’ve succeeded in being taken seriously, they’ll meet that commitment. If they don’t, then the full fury of The Rules shall bear down upon them.</p> <p>And then, you get back to making great stuff. After a brief roll on your massive pile of cold hard cash. Five minutes, maximum. That’s the rule.</p> http://www.allenpike.com/2016/disclosure-indicator The Disclosure Indicator 2016-10-31T22:00:00-07:00 Allen Pike http://www.allenpike.com/ <p>Every week, I receive roughly a dozen new project inquiries. Since Steamclock works with perhaps a dozen clients in a year, I triage roughly 50 leads for every one that turns into a real project. The time I spend doing sales is neither fun nor directly producing revenue, so I’m always looking for ways to speed up this filtering and get back to making apps.</p> <p>Inspired by the classic Mule Design <a href="http://muledesign.com/designbook/screener.html">client screener</a>, I always start by asking leads some core questions about their projects and their business, working to determine if their project is fit, so I can avoid wasting anybody’s time. I’ve completed hundreds of these mini investigations, and there are now patterns I quickly recognize – auspicious signs and red flags.</p> <p>Some of the red flags are easy to spot. Maybe they start by declaring that they have no budget. Perhaps their email was sent from a hotmail address and contains simply “i have idea for app, please call me asap”. More interesting to me, though, are the more subtle cues that we don’t want this project. One of the most useful of these red flags is the refusal to discuss a project without a Non-Disclosure Agreement.</p> <h2 id="please-sign-and-return-asap">Please sign and return ASAP</h2> <p>Here’s how NDAs used to go back in the early days. Some guy gets in touch about a project – it’s gonna be yuge, believe me – but before he can reveal anything about his paradigm-shifting startup, he asks that we sign an NDA to protect his valuable intellectual property. Never mind that we keep our client conversations in confidence, as would any business that cares about its reputation. Idea Guy needs it formalized.</p> <p>So he sends over some NDA, in Word format of course, and I sit down with a coffee to digest the thing. Inevitably his proposed contract has no time limit, doesn’t specify exactly what it’s trying to protect, is one-sided, conflicts with our service agreement, has bogus clauses that have nothing to do with IP, and most criminal of all, is set in Arial.</p> <p>As it happens, just this week somebody sent me a 10-page NDA that included a laundry list of demands, including indemnification, royalties, and rules for performing <em>audits</em>.</p> <p>So anyway, I would go back and forth with Idea Guy and his lawyer, trying to get to something we can actually sign. Assuming that we eventually got it down to something signable, I’d do the digital signature dance and file away the document – since we’re now legally bound to it – in a folder with the laundry list of other legal eels we’ve collected over the years.</p> <p>Behold, he’s finally free to launch into his grand idea, which promptly turns out to be impractical, unoriginal, or borderline illegal. Nine times out of ten, this results in me patiently giving out some free consulting about how the app market works and what the core problems are with his scheme. For my kindness, I’ve achieved nothing other than getting ever better at describing why a project is doomed.</p> <h2 id="a-simple-test">A simple test</h2> <p>Nowadays, with far more leads and far less patience for yet another photo sharing app, I have a much different answer when it comes to NDAs: <em>no</em>.</p> <p>While pushing back against NDAs reduces the amount of legal wrangling and .docx slinging I need to do, it more importantly splits client leads into two groups:</p> <ol> <li>Folks who specifically want Steamclock to work on their project</li> <li>Folks who think their idea will be successful regardless of who implements it</li> </ol> <p>This is super valuable, because group #2 is toxic and will never end up paying for a reputable design and development studio, let alone listening to one. Whether you describe ideas as <a href="https://sivers.org/multiply">an multiplier of execution</a>, <a href="http://www.inc.com/karl-and-bill/why-most-ideas-are-worthless.html">worthless</a>, or <a href="https://blog.hartleybrody.com/wont-sign-nda/">dime-a-dozen</a>, the simple fact is that we sell great execution. If you don’t value that, we’re not going to see eye to eye.</p> <p>So, we don’t sign “idea guy” NDAs. Sometimes they get it and reap the reward of a free discussion about their project, and other times they take their get-rich-quick vision somewhere else. In some rare cases, though, they get argumentative. When this happens it can get weird, and promptly shine a bright light on another benefit of refusing NDAs: it keeps you from working with people that are inherently distrustful. I recently had somebody email me six separate times, each time with a different pitch for why I “needed” to sign their NDA, including one onslaught that was nearly a thousand words long.</p> <p>Now, listen. Business is business and you need to keep your head up. I get that. But if your mental model is that everybody is out to steal from you and I’m just sitting here waiting to poach your sure-fire idea for a hamster-sharing app, something is seriously wrong. A key building block of a successful working relationship is establishing trust, and if a client’s default position is paranoia, you’re going to have a bad time.</p> <h2 id="thanks-for-your-inquiry">Thanks for your inquiry</h2> <p>Now I’ll admit, we still sign NDAs from time to time. We have a single-page mutual NDA we use for projects where the potential client is an established business with a budget, and they need to share customer, sales, or other info that’s <em>actually commercially valuable</em> in order for us to put together a proposal. Surprisingly frequently, though, we get through the whole sales and proposal process without needing a formal NDA, even for some very large companies. For everybody else, the answer is no.</p> <p>Okay, okay, not just “no”. I’m Canadian, and try to maintain a degree of politeness even when people crap in my inbox, so my real response is typically more like this:</p> <blockquote> <p>While we keep pre-sales conversations like this in confidence, our policy on NDAs is not to sign them unless we’ve validated that a project is a fit for Steamclock. With that in mind, here are some questions to better understand your project…</p> </blockquote> <p>Of course, that assumes I actually have questions. Sometimes, I don’t. When a lead selects the minimum possible budget on our contact form, lists their company name as “not without NON DISCLOSURE!”, and enters a contact email containing the term “thrustmaster”, my response is terser.</p> <blockquote> <p>Thanks for your inquiry. Unfortunately, we do not sign NDAs for pre-sales conversations, and our typical project budgets are more than you’ve indicated. Best of luck with your project.</p> </blockquote> <p>The power of TextExpander is such that I can maintain a facade of mere irritation when in fact I am only bringing myself to respond in order to discourage them from ever emailing again.</p> <p>Whether I succeeded or not in my pursuit of balance, I’ll never know. Thankfully, they never replied.</p> http://www.allenpike.com/2016/socking-simians Socking simians 2016-09-30T22:00:00-07:00 Allen Pike http://www.allenpike.com/ <p>For years, app developers and users alike have struggled with the App Store’s search. Quality apps <a href="https://www.allenpike.com/2013/searching-the-curatorium/">have often been outranked</a> by profitable garbage. Now, thanks to Search Ads, this highly visible shovelware can finally be outranked by the developers that truly matter: the highest bidders.</p> <p>Online ads have long been dominated by bidding systems, which allow advertisers to dictate exactly how much they’re willing to pay for a user to click, tap, or otherwise palpate their ad. The key advantage to the auction approach is that it tends to show the most profitable ads. The key disadvantage, however, is that it tends to show the most profitable ads.</p> <p><a href="http://www.mikeonads.com/2007/03/01/punch-the-monkey/"><img style='max-width: 100%' src="/images/2016/punch-monkey.jpg" /></a></p> <p>In many contexts, the most profitable ads are the flashiest, the most distracting, and the most deceptive. Whether it’s <a href="http://knowyourmeme.com/memes/here-in-my-garage">some guy</a> bragging about his <a href="https://www.youtube.com/watch?v=0GIwTG8V-Ko">Lamborghini account</a> or a banner ad imploring you sock a simian, there has always been a category of ad that tries to suck in eyeballs using a finely-tuned blend of weirdness and deceit.</p> <p>Thankfully, App Store Search Ads are static and will likely be policed. As such, the ads we see on the App Store will typically be profitable not because they’re annoying, but because the apps they promote make a lot of money. More precisely, since App Store Search Ads charge the advertiser when a user taps on the ad, the ads that will win will be for apps that make a lot of money <em>per App Store product page view</em>.</p> <h2 id="ad-fuel-to-the-fire">Ad fuel to the fire</h2> <p>Thanks to Apple’s App Analytics, I know that about 10% of views for our <a href="https://itunes.apple.com/ca/app/my-weddingdj/id383243064?mt=8">WeddingDJ App Store page</a> result in a purchase. I know that a lot of pages online convert at 1% or less, so this seems decent for a $8 app. We make $5.60 after Apple’s cut, so using an advanced field of math known as multiplication, we can determine that a WeddingDJ App Store view is worth no more than 56 cents. Worse, that metric is inflated by visitors that are explicitly looking to buy our app, so the value of a view coming from a wandering soul just browsing the store is perhaps 40 cents or less.</p> <p>As such, when Search Ads launch on Wednesday, we’ll have an experimental ad running in the App Store for a few wedding-related keywords, with a maximum bid of only 30 cents per tap. Based on my previous experience with ads on Google, Facebook, and elsewhere, I expect two things to happen:</p> <ol> <li>Our bid will turn out to be too high to be profitable for us, <em>and</em></li> <li>Our bid will turn out to be too low to be profitable for Apple</li> </ol> <p>I’m always open to trying new things, but mathematics is not, and the math is seriously stacked against anybody trying to profit from ads at $8 per sale.</p> <h2 id="this-episode-is-brought-to-you-by-profit">This episode is brought to you by profit</h2> <p>Think about some software ads you’ve seen or heard recently. Likely, those ads are for software that generates a lot of revenue per user. Likely, that software is priced with a subscription. Advertising studs like Squarespace, Backblaze, and Hover all drive subscriptions. Subscriptions are jet fuel for what spreadsheet addicts call Lifetime Value, or LTV.</p> <p>Now, it’s intuitive that subscriptions increase the average revenue per user – that’s just common sense. But if your renewal rate is good, the effect exceeds our intuition. Let’s take <a href="https://www.backblaze.com/">Backblaze</a> for example. This simple backup service is famously “only $5” a month. Assuming they have a 90% yearly renewal rate, one signup would bring in $600. If you can drive such a signup for only $100, you’re doing great – you’ve found a way to turn money into a bunch more money.</p> <p>Meanwhile, the poor schmoes charging just $10 for an app can only justify ads if they can motivate a purchase for under $3 per sale. At today’s ad rates, you can barely drive an install of a <em>free</em> app for $3, let alone convince some cash-strapped millennial to cough up $10.</p> <p>Of course, a naïve auction system would reduce the price of a keyword until it becomes profitable – at least once the dumb VC money takes its turn. This could mean that some App Store ads actually do run for 40 cents, 10 cents, or as cheap as they need to be for developers to make a profit. Unfortunately for those of us that sell products with low LTV, there is a threshold where it’s not worth it for the ad network to show your ad at all, and typically 40 cents won’t cut it.</p> <p>Showing ads, you see, comes at the cost of slowly training viewers to tune them out. Given this, we see veterans like Google presenting no ads at all for most queries. If a search term doesn’t drive demand for highly priced legitimate ads, no ads will appear. Meanwhile, profitable keywords, which Google refers to as “highly commercial queries”, often have an entire screen full of ads before the first organic result.</p> <p><img style='max-width: 100%' src="/images/2016/google-ads.png" /></p> <p>Most search terms that indie app developers would be interested in will probably fall into the “not profitable” category. If Apple is willing to show our ads for a few cents each while the system learns, then there’s no harm in putting them up, but that train won’t last long.</p> <p>In the long term, Search Ads are just yet another argument for charging serious, sustainable money for your software. Whether you’re looking at the <a href="https://daringfireball.net/2016/06/the_new_app_store">new options for in-app subscriptions</a>, providing <a href="https://1password.com/sign-up/">a fully fledged cloud service</a>, or taking Omni’s lead in <a href="https://www.omnigroup.com/blog/providing-the-best-possible-app-store-experience">making use of App Store changes that allow a form of trials and upgrade pricing</a>, the first step is shipping something that makes serious revenue per user.</p> <p>Then, and only then, will it be worth asking them to punch a monkey.</p>